The stop loss: where to place it and why you never widen it

A stop loss is an order that automatically closes your position when price reaches a given level. It sets your maximum loss before the trade even starts. Everyone knows you need one. Far fewer traders know where to put it, and that is where everything is decided.

Technical stop or money stop

There are two ways to choose your stop level. A money stop starts from your wallet: “I don't want to lose more than €50, so I put my stop at €50 of loss.” A technical stop starts from the chart: “My idea is wrong if price breaks this level, so my stop goes just beyond it.”

The money stop has a big flaw: the market does not know your account. A stop placed at an arbitrary distance often lands in the middle of normal price noise, where it gets hit without your analysis being proven wrong. The right method combines both: the chart decides the level, then your risk budget decides the position size.

Below the last swing low, above the last swing high

For a buy, the simplest reference is the last significant swing low. If price trades back below it, the bullish structure that justified your buy is broken. For a sell, it is the reverse: the stop goes above the last swing high. Always add a small buffer, because price often tags an obvious level before moving on, and remember the spread: a sell stop triggers on the ask price, a little higher than the price shown on the chart.

Same logic on gold: if you sell XAU/USD at $3,320 after a rejection below $3,334, your stop might go at $3,336, which is $16 above your entry. If that distance feels too big for your capital, the answer is not to move the stop closer. The answer is to take a smaller position, or to skip the trade.

Using ATR to account for volatility

ATR (Average True Range) measures the average size of the candles over a period, often 14 candles. It tells you how much price “normally” moves. A stop tighter than the ATR has a good chance of being hit by plain market noise.

The golden rule: never widen your stop

Price is closing in on your stop. You tell yourself it will bounce and you move your stop back 20 pips. Then again. That move turns a 1% risk trade into a 3% trade, then a 5% trade. This is exactly how the big losses that blow up accounts are made.

• You can tighten your stop to protect a gain, for example to your entry price once the trade is well under way.
• You can close the trade early if the context changes, for example before a major news release.
• You must never move the stop further from your entry price once the trade is open.

Tightening your stop is good practice when it is done methodically. Once price has travelled a distance equal to your initial risk, many traders move the stop to their entry price: the trade can no longer cost you money, slippage aside. Others use a trailing stop, placed under each new swing low as the trend progresses. Be careful not to tighten it too fast: a stop moved up at the first pip of profit often gets hit by a perfectly normal pullback.

The guaranteed stop

Some brokers offer a guaranteed stop. Unlike a standard stop, it is filled exactly at your level, even if the market gaps beyond it. In return, the broker charges a premium and often imposes a minimum distance from the current price. Terms vary from broker to broker: read the product sheet before using one.

A guaranteed stop is useful if you hold positions over the weekend or around events with a high risk of gaps. For intraday trading on very liquid pairs, most traders stick with a well-placed standard stop and avoid being exposed during news releases.